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Using Import Sales Agreements

Being able to import products can help small businesses offer local customers access to cheaper or hard-to-find goods. But to succeed as an import business, they need to find reputable exporters who can be trusted to deliver quality goods on time at an acceptable price.

Having a properly defined sales agreement can ensure that a business's import efforts are successful, says Larry Delson, owner of Delson International, an import/export consulting firm in New York, and adjunct associate professor at New York University's School of Continuing and Professional Studies.

An import sales agreement should specify not just what is being ordered, but how it will arrive and who is responsible for it in transition, Delson says. It should include the terms of sale, including the price and quantity of the imported goods, the foreign currency of the foreign transaction, terms of payment and timing of delivery. It should also detail who is responsible for shipping and insurance, when international payments will be made, and what actions can be taken if the goods are damaged, late or inconsistent within the order.

“The most common negotiating term is who arranges and pays for shipping.”

— Larry Delson, owner of Delson International and adjunct associate professor at New York University

"I always tell my students and clients that you want your sales agreement to be as complete as possible," Delson says.

Many of these issues are covered by International Commercial Terms (Incoterms), a series of predefined commercial terms for international shipping defined by the International Chamber of Commerce and accepted by different countries. Incoterms outline exactly who is obligated to take control of imported goods and when, and who is responsible for insuring them throughout the shipping process, Delson explains. "Incoterms create clarity for the import transaction," he says.

Delson urges small business owners to familiarize themselves with Incoterms and to include a specific version of them in the contract. "This way, it is perfectly clear who is responsible for what," he says.

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Delson encourages small business owners to work with customs brokers to complete the shipment process. A customs broker clears imported goods through customs, handling all the documents, government inspections, and tax and duty payments.

"If these activities are not your area of expertise, why allocate scarce resources to them?" he says. "It is a minimal cost to have someone protect your interests."

Room to Negotiate

When establishing import business agreements with export businesses, most established export businesses will have predefined expectations. However, small business owners can try to negotiate more favorable terms.

"The most common negotiating term is who arranges and pays for shipping," Delson says. The party tasked with this responsibility may be able to increase its margin through shipping fees if it has established freight providers, but it adds additional risk and cost to the transaction, he says.

For example, if a French wine exporter arranges a shipment via a freight forwarder, and the cost to ship the product is €10,000 euro, the exporter could add a 20 percent markup to the cost of shipping, which nets the exporter an extra €2,000 euro in profit.

However, this type of reward comes with a certain level of risk. "An exporter may be able to get freight for a lower cost, but any risk of loss remains with the exporter until the merchandise is delivered," he says. "If the boat sinks, it's the seller who suffers in that situation."

An import business may also be able to negotiate payment terms to protect both parties, adds Kenneth Weiss, owner of Plans and Solutions, an international trade consultant in Gaithersburg, Md., and author of Building an Import/Export Business. For example, the export business may agree to half of the international payment up front and half once the shipment is delivered.

Regardless of international payment terms, importers can use a trusted online foreign exchange service to facilitate the transfer of funds. Using a computer, tablet or other mobile device, the importer can place a bid via its foreign exchange provider. Also known as limit orders or standing orders, bids allow business owners to specify their ideal rate of exchange. When the rate becomes available, the foreign exchange service automatically processes the order. This enables the importer to manage its risk exposure, thereby protecting its profits and cash flow.



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